Global stocks took a brutal plunge overnight as fears of a virus pandemic gripped the markets. The Dow Jones Industrial Average (DJIA) opened 40 points lower, pointing to a weak session on the U.S. stock market.
China confirmed that the deadly coronavirus, which killed a fourth person last night, can be transmitted from person-to-person. The World Health Organization urged countries to “be ready” for the virus to spread. Investors who remember the devastating SARS virus in 2003 sent the financial markets into a panic.
“I remember the SARS outbreak very, very clearly and the impact it had. These things have an enormous hit on economies. It is not inconceivable that if [the coronavirus] becomes more widely spread, and starts to claim more lives, that it will result in a similar response” – Rob Carnell, ING.
Very little is known about the deadly virus so far. 291 cases have been confirmed, with four deaths. The virus is thought to have emerged in a Wuhan fish market and has since spread from mainland China to Japan, South Korea, and Thailand. The World Health Organization urged countries to “be ready.”
There is still much to understand about this virus. We still don’t know what the exact source of the virus is. We don’t know how exactly it is being transmitted. How easily it is being spread among humans. And we’re looking into the severity of the virus. We know it causes respiratory illness and likely sources [from] the animal world. We are advising countries to be ready.
The timing of the outbreak is particularly worrying. It strikes ahead of China’s Lunar New Year – often referred to as the “largest human migration on the planet” as families travel through Asia.
Global pandemics have a history of derailing economies. The SARS virus, which killed 774 across Asia and Canada sent some nations into recession.
Things like this … stop people from undertaking economic activity. You don’t go out. You don’t travel. You don’t eat out … You don’t even need lots of people to die or even get sick. You just need people to be worried about that to have a very very massive impact, and potentially quite a long-lasting impact.
Asian airline stocks were the first to take a hit when the news broke overnight. Retail and travel stocks also slumped, while health and pharmaceuticals rallied.
The news also shows how precarious the Dow Jones is this current moment. At record highs, and wildly overvalued by most models, it won’t take much to trigger a stock market pullback.
“[The coronavirus outbreak shows], if nothing else, that the global economy has precious spare capacity to absorb unexpected crises” – Jeffrey Halley, senior market analyst for Asia Pacific at Oanda.
Early signs predict that coronavirus is not as aggressive as SARS, but investors will be watching this closely.
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Last modified: June 14, 2020 9:53 AM UTC